Yes, a Secret Sale Can (Still) Invalidate Your Patent

03.05.2019

In January 2019, the Supreme Court affirmed that a commercial sale of a product to a third party before a related patent application is filed may fall under the “on-sale” bar to patentability, even if that sale is secret. This decision, handed down in Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc.[1], is an important reminder to inventors to get the timing of filing their patent application right and the potential dangers if they do not.

The On-Sale Bar

The “on-sale” bar is a limitation on the availability of patent protection in the U.S. Prior to 2011, the on-sale bar specified: “A person shall be entitled to a patent unless . . . the invention was . . . in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States.” In 2011, an amendment to U.S. patent laws modified this provision to add the following catchall phrase: “A person shall be entitled to a patent unless [the] claimed invention was . . . in public use, on sale, or otherwise available to the public…” This catchall provision was at the center of the dispute in Helsinn.

Background of Helsinn

Helsinn involves a pharmaceutical company (“Plaintiff”) that developed and patented an anti-nausea pharmaceutical product and a competitor (“Defendant”) that made and sold a generic version of that product. While Plaintiff was still developing its product and before any patent applications were filed, it entered into a distribution agreement with a third party that permitted that third party to promote and sell the anti-nausea product in the U.S. The existence of the distribution agreement was announced publicly in a press release, but all proprietary information related to the product remained secret.

Beginning approximately two years later, in January 2003, Plaintiff filed the first of several related patent applications for its product. It was awarded a patent stemming from one of these applications that was filed in 2013 under the amended U.S. patent laws. Plaintiff sued Defendant for patent infringement under that patent for the Defendant’s sale of the generic version of Plaintiff’s patented product. The Defendant countered that patent protection for the Plaintiff’s product was barred, and the patent was invalid because the Plaintiff’s product was “on sale” for more than a year before a patent application was filed.

The District Court held that an invention is not “on sale” unless the sale or offer to sell the claimed invention is public. In reaching that conclusion, the District Court sided with Plaintiff, which argued that the newly-added catchall phrase “or otherwise available to the public” modifies the “on sale” provision. Under that interpretation, a sale must be “available to the public” to fall within the scope of the on-sale bar. Therefore, since Plaintiff entered into a confidential distribution agreement, the invention was not “on sale” and Plaintiff’s patent was valid.

On appeal, the Federal Circuit reversed that decision and held that “if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale” for the on-sale bar to apply. As a result, Plaintiff’s patent was found to be invalid. This decision was discussed in our previous article "FILE PATENTS NOW, Sell Later – The On-Sale Bar is Alive and Kicking!"

Helsinn at the Supreme Court

The case was appealed to the Supreme Court, which was asked to decide if the sale of an invention to a third party who is contractually obligated to keep the invention confidential places the invention “on sale.” The Court cited its prior decision in Pfaff v. Wells Electronics, Inc., where it made a similar determination under a pre-2011 version of the on-sale bar language. Under Pfaff, the Court found that the on-sale bar applied when the following conditions were met:

The Court found that this prior interpretation should continue to be applied since Congress used the identical “on sale” statutory language from the prior version in the updated version. The Supreme Court gave no weight to the added catchall phrase “or otherwise available to the public” after finding that the legislative history lacked any clear indication that Congress intended to modify the meaning of “on sale.” On that basis, it found that the mere inclusion of the catchphrase was insufficient to overturn its earlier precedent from Pfaff.

Implications for Inventors

The Supreme Court’s decision in Helsinn re-affirms that any sale of (or offer to sell) an invention, whether made in public or in secret, may fall under the “on-sale” bar and could prevent an inventor from obtaining a patent for that invention or result in a patent being subsequently invalidated. One of the best ways to prevent this potential loss of rights is to file a patent application before any public disclosure, use, sale, etc. of the invention is made, including any secret sale of the invention.

There are two filing routes for inventors:

1. File a non-provisional application. This is the formal or complete patent application that will be examined by the U.S. patent office and that could result in the issuance of a patent.

2.File a provisional application…then a non-provisional application. If an inventor is interested in quickly selling the invention, minimizing costs, or testing the viability of an idea before filing a full-fledged non-provisional application, a provisional application is an attractive option. Provisional applications are often a shorter, less formal, and less costly way to get a filing date. Once a provisional application is submitted, the invention is “patent pending” and the inventor can continue to develop that invention and disclose or sell the invention. These activities are protected against the on-sale bar by the provisional patent application until its expiration after 12 months. Importantly, to maintain this protection, the inventor must file a corresponding non-provisional application before the provisional application expires.

If inventors do not file before disclosing or selling, they run the risk of being "barred" (i.e., prevented) from getting a patent in the future for what they've sold or disclosed. Or, if they were to be awarded the patent after selling or disclosing the invention, the patent could potentially be invalidated.

If you have questions about the on-sale bar, the best time to file patent applications, or other intellectual property matters, please contact us.

[2] Proof that an invention is “ready for patenting” includes reduction to practice (i.e., the invention has actually been carried out, such as by building a prototype) and drawings and descriptions that sufficiently describe the invention.